The Paradox of Performance Measurements: A Double-Edged Sword
As businesses strive to improve efficiency and profitability, they turn to key performance indicators (KPIs) as a way to measure their progress. Nevertheless, as with any tool, the improper application of KPIs can result in unanticipated and often detrimental outcomes. They may become a stumbling block rather than a conduit for improvement, an uncontrollable monster that distorts the whole nature of performance monitoring. As the economist Charles Goodhart, stated:
“When a measure becomes a target, it ceases to be a good measure.”
This statement underscores the paradox of performance measurement. KPIs are invaluable for monitoring the pulse of a business, but if they become the sole focus, they can lead to a dangerous tunnel vision. Employees, in their quest to improve KPIs, might lose sight of the bigger picture — improving overall performance. In theory, improving KPIs should go hand-in-hand with improving performance. In practice, however, there’s always a way to “game” the system.
The Art of Mismeasurement
KPIs are valuable for tracking progress, but pinning everything on them can lead to a myopic focus on superficial numerical improvement, often at the expense of actual performance improvement. This phenomenon is especially pronounced in complex second-order systems — systems that change their behavior based on feedback about themselves. Human-centric systems typically fall under this category.
Take, for example, the education system. Many students are more concerned about their grades than mastering the knowledge. Why? Because they’ve become conditioned to believe that success only hinges on getting good grades, rather than absorbing knowledge. For many students, the fixation on grades has overshadowed the true essence of learning — the acquisition and understanding of knowledge. This skewed perception of success isn’t merely a misbelief held by the students; it’s a systemic issue propagated by the very structure of the education system. Pupils are conditioned to equate academic success with grade attainment, a misconception that often overlooks the real value of comprehensive learning.
The KPI conundrum isn’t confined to students; educators are equally susceptible. The recent scandal involving Marc Tessier-Lavigne, President of Stanford University, serves as a grim reminder of how the pursuit of KPIs can lead astray even the most esteemed individuals. The scandal probably stems from the pressure to meet the KPIs related to publication count, which in turn resulted in falsified research. The issue of scientific misconduct is far from isolated. It’s emblematic of the widespread pressures faced by academics globally, largely driven by university ranking metrics and similarly unreasonable KPIs. The relentless pursuit of these targets, more often than not, compromises the integrity of research and undermines the very ethos of academic curiosity. Basically, if you cannot make it, fake it. Numerous metrics for measuring performance, yet we often overlook quantifying something as vital as trust.
Unfortunately, this mentality extends to the corporate world. When bonuses or penalties are tied to specific KPIs, employees naturally aim to maximize their performance against these metrics — even if it means gaming the system. This can disrupt the equilibrium of a company in unpredictable ways and may not always align with a company’s best interests. Also, for example setting a goal to raise fines revenue from traffic violations could unintentionally motivate employees to tune camera locations to optimize trapping drivers violating traffic rules, thereby increasing fine-related income. Thereby, this KPI turned the true aim of traffic fines from reducing traffic violations to increasing traffic violations tickets in order to generate additional revenue.
KPIs Side Effects
The potency of Key Performance Indicators (KPIs) as management tools is undeniable, yet their misuse can lead to a concerning array of malpractices. As the scientific misconduct scandals, financial mis-selling controversies, and healthcare target debacles demonstrate, poorly conceived KPIs can wreak havoc on an unprecedented scale.
In the financial sector, KPIs played a significant role in the mis-selling scandals. Agents, driven by commission and performance incentives tied to the number of policies sold, frequently recommended unsuitable insurance products. The result was a catastrophic fallout, with billions paid in settlements to wronged customers. This example starkly illustrates the perils of KPIs that prioritize quantity over quality, fostering an environment where the ends justify the means, regardless of the ethical implications.
Parallelly, the healthcare sector has had its share of KPI-induced fiascos. A prime example is the 4-hour A&E target, a measure that has inadvertently endangered patient safety. Instead of prioritizing the severity of cases, this metric incentivized treating less critically ill patients first to ensure they left the department before the 4-hour limit. As a result, newer, potentially more serious cases were left waiting, with potentially life-threatening consequences.
These examples underscore the pivotal role KPIs play in shaping behaviors and, in turn, outcomes. When poorly conceived, these metrics can inadvertently incentivize detrimental behaviors, as individuals and organizations orient themselves to meet these targets, often at the expense of the system’s overall wellbeing with sometimes harmful side effects.
Measure What Matters
There are no easy solutions, but a shift in perspective is needed. We need to move away from individualistic KPIs towards team or company results based on genuine sustainable benefits. This requires replacing the attempt to break down company goals into a grid of personal goals with actual company or organizational unit goals as the KPIs for everyone. This approach promotes a collective focus on holistic, meaningful progress rather than individual metric manipulation.
However, this approach shouldn’t overlook the unmeasurable or unknown factors that still matter. As H. Thomas Johnson noted,
“Perhaps what you measure is what you get. More likely, what you measure is all you get. What you don’t (or can’t) measure, is lost.”
Just because something can’t be quantified doesn’t mean it should be ignored.
In Managing to Learn, John Shook highlights how Lean Thinking can help organizations navigate this complex landscape. As companies continue to rely on KPIs to drive performance, it’s crucial to remember that what matters most is not just the measurement, but the understanding, interpretation, and thoughtful response to these measurements.
It is worth mentioning, that the Economist’s first-ever college rankings based on the economic value of universities, focusing squarely on the economic value derived from attending different institutions. This approach aims to gauge the incremental earning potential students gain from each particular college compared to alternatives. The ranking system considers a multitude of factors, including SAT scores, demographic data, institution size, academic disciplines, and affiliations. This methodology offers a refreshing perspective by emphasizing the tangible impact on students’ long-term earnings, that really matters to students. It’s a departure from traditional metrics that rely heavily on academic paper counts, a practice that can inadvertently encourage the propagation of dubious research papers through academic paper mills.
Final Thoughts
As we navigate the complex landmines of performance management, it’s crucial to remember that KPIs are tools, not real goals in themselves. They should serve as guides, not blinders, enabling us to track and improve performance in meaningful, sustainable ways. And like any tool, their effectiveness depends not on their intrinsic properties, but how well they are wielded. We must measure wisely and thoughtfully, considering potential adverse side effects, and maintaining a focus on the ultimate goal — real, sustainable improvement rather than merely focusing on management by measurements.
